Synthetix’s core stablecoin sUSD has faced a depegging crisis since March 20, 2025, dropping to $0.8388 and deviating over 16% from its intended $1 peg. The issue stems from transitional disruptions caused by the SIP-420 proposal, temporarily disabling sUSD’s ability to restore its peg. Despite these challenges, Synthetix’s native token SNX has surged, with the market showing continued optimism toward its long-term potential. The protocol’s move to sell ETH and accumulate more SNX was aimed at strengthening internal support, but it has also added uncertainty. This crisis stands out for its complexity and persistence, highlighting the need for Synthetix to optimize its mechanisms and restore confidence.

Synthetix’s ecosystem is facing a severe depegging issue with its core stablecoin sUSD. As of April 9, 2025, sUSD has dropped to around $0.8388, over 16% below its theoretical $1 peg, drawing major attention. The crisis began on March 20 and has lasted more than 20 days, with the deviation continuing to widen. Meanwhile, Synthetix’s native token SNX defied the downturn, posting a 7.5% daily gain, reflecting mixed market sentiment. Synthetix founder Kain Warwick (@kaiynne) attributed the depegging to the pains of mechanism transition and disclosed that the protocol has sold $90 million worth of ETH to add SNX positions.

Timeline: The Gradual Worsening of the Depeg

The sUSD depeg didn’t happen overnight. On March 20, 2025, its price began showing slight deviations, which initially didn’t raise widespread concern. However, over time, these fluctuations evolved into a sustained downward trend. By April 9, CoinMarketCap data showed sUSD trading as low as $0.8388—over 16% below its peg. Spanning more than 20 days, this prolonged and deep depeg far exceeded typical market tolerance for stablecoins, revealing the underlying complexity of the issue.

Kain Warwick addressed the issue on X, explaining that the depeg was an expected side effect of implementing SIP-420. This proposal aimed to optimize the SNX staking mechanism and capital efficiency by introducing a centralized debt pool—the “420 Pool.” However, the transition between the old and new systems temporarily disabled sUSD’s ability to restore its peg. He openly stated that, at this stage, “there’s no incentive for users to buy sUSD to repay debt,” making supply-demand imbalance the direct driver of the price drop. Additionally, the protocol’s strategy of selling 90% of its ETH holdings to increase SNX exposure, while intended to strengthen internal support, may have weakened liquidity and external stability, adding further uncertainty to the market.

Root Cause of the Decoupling: The Combination of Mechanism Transformation and Market Feedback

The cause of this decoupling is not singular but the result of a combination of mechanism adjustments and market behaviors, presenting challenges from multiple dimensions.

The implementation of SIP-420 is the core trigger of the crisis. Synthetix’s stablecoin mechanism relies on the over-collateralization of SNX. Users mint sUSD by staking SNX and bear the volatility risk of the system’s debt pool. Under the old mechanism, the high collateralization ratio of up to 750% and debt repayment incentives maintained the stability of sUSD. However, SIP-420 shifted the individual staking model to a centralized debt pool, aiming to enhance the staking attractiveness of SNX. This transformation theoretically injects long-term potential into the ecosystem but disrupted the original balance during the transition period. Warwick admitted that the new mechanism is not yet fully mature, and the old anchoring repair function has been temporarily shelved, causing sUSD to lose its self-regulating capability.

Market behavior feedback further amplified the decoupling effect. Information from platform X shows that some users concentrated their exchanges of sUSD for USDT or USDC on decentralized exchanges like Curve, quickly draining the liquidity pool’s balance. For example, in Curve’s DAI-USDC-USDT-sUSD pool, sUSD’s proportion once spiked, reflecting a loss of market confidence in stability. With a market cap of only $25 million, sUSD has inherently weak liquidity, and any concentrated sell-off could trigger significant slippage, causing the price to further deviate from its pegged value.

Protocol-level adjustments also brought unintended side effects. The decision to sell 90% of ETH and increase SNX holdings, while strengthening SNX’s dominance in the ecosystem, reduced the system’s diversified support. As an asset widely recognized as collateral in the market, the exit of ETH may have weakened external confidence in sUSD, while SNX’s volatility increased the risk concentration. When the price of SNX rises, this strategy might boost confidence, but in the context of ongoing decoupling, it casts a shadow over the recovery process.

Historical Comparison

The decoupling of sUSD is not a first occurrence. Looking back to May 16, 2024, sUSD briefly dropped to $0.915 due to a whale selling sBTC for sUSD, causing a decoupling of about 8.5%. At that time, insufficient liquidity in the Curve pool, combined with MEV arbitrage bots, led to a brief loss of control over the price. Synthetix quickly took action by adding ETH, BTC, USDC, and other collateral to restore confidence, and offered liquidity incentives on Velodrome and Curve. Eleven days later, sUSD successfully returned to its peg of $1. That decoupling was essentially an external shock, and the mechanism itself remained intact, with a clear and efficient recovery path.

In contrast, the decoupling in 2025 presents a distinctly different characteristic. This crisis stems from an internal mechanism adjustment in SIP-420, rather than a single external sell-off, significantly increasing the complexity of the issue. The 2024 decoupling lasted 11 days with an 8.5% drop, while the current one has lasted over 20 days with a drop exceeding 16%, highlighting the severity and persistence of the problem. Furthermore, the 2024 response relied on liquidity incentives and collateral diversification, whereas the 2025 strategy leans more toward internal adjustments (such as selling ETH to increase SNX holdings), with short-term effects yet to show. This indicates that the 2024 experience cannot be directly applied, and the repair difficulty is far greater than before.

Feasibility Analysis of Bottom Fishing sUSD

Currently, sUSD is hovering around $0.84. For investors, is bottom fishing and waiting for a return to peg feasible? The experience of 2024 offers some insights. At that time, sUSD rose from $0.915 back to $1, with bottom fishers earning about 9% in two weeks. The key to success was the quick incentives and the brief nature of the external shock. Now, with the price even lower ($0.84), the potential return is higher (about 19%), but the risks are also amplified.

There are favorable factors not to be overlooked. The 7.5% rise in SNX reflects that market confidence in Synthetix has not collapsed. The team’s positive statements and debt reduction plans also inject hope for recovery. With a small market cap, sUSD has low capital demand, so if the protocol introduces incentives, small buy orders can push the price up. However, the risks are also significant. The decoupling has lasted over 20 days with an unknown duration. If the adjustment of the new mechanism is delayed, the recovery could take months. The sell-off pressure remains, and the imbalance in the Curve pool may further depress the price, while the loss of user confidence could also weaken demand.

Taking $100,000 as an example, buying about 119,000 sUSD at $0.84 could yield a profit of $19,000 if it returns to the peg of $1, representing a 19% return. However, it is recommended to set a stop-loss line (e.g., $0.75) and closely monitor protocol announcements. If Synthetix introduces incentives similar to those in 2024, the chances of success in bottom fishing will increase. If the price stabilizes and SNX continues to rise, small positions can be taken. Compared to the low-risk window of 2024, this opportunity offers higher returns but comes with greater uncertainty.

Market Response and SNX’s Abnormal Movements

Despite sUSD being trapped in a decoupling crisis, SNX recorded a 7.5% single-day increase on April 9, a striking contrast. The market’s optimistic sentiment may stem from expectations of long-term benefits from SIP-420. If the new mechanism is successfully implemented, it could enhance SNX’s staking rewards and ecological position, boosting Synthetix’s competitiveness in the DeFi space. Warwick’s “Debt Jubilee” debt relief plan may also inject confidence into investors, suggesting that the clearing of historical debt will reduce the system’s burden.

The community response is polarized. On platform X, some users worry that sUSD may fall into a “death spiral” and question the rationality of the mechanism adjustments. Others believe that with a market cap of $25 million, the impact of sUSD is limited, and the rise of SNX is the true reflection of market confidence. Professional analysis firms like The Merkle News point out that the transition risks of SIP-420 have been underestimated, but SNX’s performance indicates that Synthetix still has potential for a comeback.

Summary

From an industry perspective, the decoupling of sUSD has a limited impact. With a market cap of $25 million, it is insignificant in the stablecoin market, far smaller than USDT or USDC, and has a minimal chain reaction within the DeFi ecosystem. However, for Synthetix internally, prolonged decoupling may undermine user trust. If liquidity continues to flow out of the pools, the practicality of sUSD will be restricted, further weakening its position in synthetic asset trading.

In the short term, intensifying decoupling may lead to more sell-offs, putting further pressure on the price. However, SNX’s resilience has provided the protocol with a window of time. If the new mechanism stabilizes within the next few weeks, combined with the debt relief plan, sUSD still has the potential to return to its peg. Long-term, Synthetix must learn from this crisis, optimize the stablecoin design, and avoid similar growing pains in the future. The success or failure of the mechanism adjustment will determine whether Synthetix can establish a solid foothold in the highly competitive DeFi market.

Unlike the external shock of 2024, the endogenous nature of this crisis makes its recovery path more convoluted. The Synthetix team needs to work on both mechanism optimization and rebuilding market confidence to turn the situation around. For investors, sUSD at $0.84 represents both a risk exposure and a potential opportunity. Whether bottom fishing or waiting, closely following the protocol’s subsequent updates will be key. In this decoupling storm, Synthetix’s future direction is worth continued tracking.

Disclaimer:

1. This article is reproduced from [MarsBit], the copyright belongs to the original author [MarsBit]. If you have any objection to the reprint, please contact the Gate Learn team, and the team will handle it as soon as possible according to relevant procedures.

2. Disclaimer: The views and opinions expressed in this article represent only the author’s personal views and do not constitute any investment advice.

3. Other language versions of the article are translated by the Gate Learn team. The translated article may not be copied, distributed or plagiarized without mentioning Gate.io.